How Firms can Validate Outside Counsel Guidelines Earlier Across Client Touchpoints, Part 1

legal software

How Firms can Validate Outside Counsel Guidelines Earlier Across Client Touchpoints, Part 1

by Marie Burgess, Director, Product Management

Here’s a story that’s becoming all too common in law firms:

A partner and client agree to terms articulated in an engagement letter or outside counsel guidelines (OCGs) on a new matter. The partner then assigns a team of lawyers to the matter and the team begins work.

After the first month, the firm compiles the time entries, runs the draft through the prebilling process, and finally submits the bill electronically to the client’s e-billing system. That’s when the inevitable happens. The first invoice comes back rejected because it violated some aspect of the client’s billing guidelines.

The rejection itself is frustrating, but there’s more to it. It slows collections. It lengthens the WIP-to-cash cycle. It adds zeros to the write-down total. Finally, it puts law firms on their heels, as they re-visit the rules and strive to distill for the timekeepers working the matter what’s different in this client agreement from others they’ve amassed.

It’s the Lack of OCG Standardization that Bites

From a client perspective, OCGs are a tool to bring predictability to the legal budget. Like any department in any business, corporate legal is being held accountable to produce the best possible outcomes with finite resources. OCGs bring standardization the GC can apply to all law firms that work with his or her company.

From a law firm perspective, it’s anything but standard as every client has their own requirements. Further, OCGs tend to be lengthy and chalk full of customizations tailored to the client. It’s becoming unwieldy and expensive.

We hear this anecdotally from firms all the time, but it’s worth pointing out, it also comes through in survey data. For example, according to the 2018 Aderant Business of Law and Legal Technology Survey, about half (45%) of law firms with 200 or more lawyers cite OCGs as among the top challenges in law firm billing and collections.

This challenge trails only e-billing (63%), which is strongly related and often a component of a given set of billing guidelines. In many cases, e-billing provides the first-round invoice review and may reject invoices based on automated rules before a human being even reads a time entry narrative.

Firms Respond by Validating Guidelines Earlier in the Process

Law firms are addressing this challenge by tackling it earlier in the process. Some firms are building business processes around reviewing OCGs at client intake alongside conflict checks, for example. During that phase, the firm might add a copy to the document management system (DMS) or firm intranet.  This way, lawyers assigned to the matter can have access to it.

The idea is to get the entire team working from the same set of guidelines at the outset of the matter. Building a process around OCGs creates a consistent way of examining the details.

Still, these guidelines are long documents. A busy associate doesn’t enjoy pausing to go look up the rules when they are entering billable time. Subsequently, firms are looking for ways to extract key information from these agreements and render it in a format that can be accessed systematically and digitally. This facilitates the dissemination and consumption of the rules.

A good illustration of this is automated validation rules created in the time and billing system based on the extracted information. When a lawyer goes to enter time, the system automatically warns them of a possible OCG violation and guides the entry as they are entering time. This enables the firm to address compliance challenges earlier and reduces the risk of non-compliance on invoices.

Validating More than Just Time Entry

Time entry is a sound place to start moving OCG compliance upstream. It’s certainly much better than having those entries go out in an invoice that’s rejected by an e-billing system or by legal operations.

However, firms should also take that extracted information and use automation to surface it across all the touchpoints a lawyer has with a client. Those rules and validations should also be visible when completing expense reports or accounts payable invoices, viewing WIP or accounts receivable for matters.

The purpose is to continuously remind timekeepers and other staff of the rules and restrictions to which the firm and client have agreed. What we’ve found is that in addition to time entry, savvy law firms are adding automated OCG validation rules to two critical areas – disbursements and billing.

Complying with Billing Guidelines in Disbursements

Firms have both soft cost disbursements like photocopy and courier costs – and hard disbursements where a firm incurs a cost for a client such as fees from vendors, expert witnesses, and court filings. Law firms tend to rely on catching these at the point of billing, with respect to OCG compliance, but clients do have restrictions in these categories.

These costs are typically added to a client invoice from an expense report or accounts payable (A/P) entry. To that end, it makes sense to surface validation rules here and continue the trend of ensuring compliance earlier in the cycle.

For example, some clients won’t approve soft costs like photocopy charges, while many firms have traditionally had automated fees tacked on to invoices for these costs. If a firm has agreed to billing guidelines that restrict such fees, then the automatic fee should be set to zero or flagging it in some way to ensure it’s written off.

Frequently there are restrictions on hard cost disbursements as well. A firm that’s agreed to a flat fee, may not be able to charge a client for travel costs. In that example, firms should have this flagged in an expense report as the timekeeper is completing it. The firm is still going to reimburse their employee, but the cost will be treated as a firm expense.

Firms have shared with us details around client agreements for taxis and meals. For example, some OCGs state the client will only pay for that sort of expense if it occurs after 8:00 p.m. This means a rule should be applied to the expense system that asks for the time of day the expense was incurred to ensure compliance with the agreement prior to invoicing.

Other rules firms have shared include invoicing timelines. For instance, a firm that agrees to invoice monthly might be prohibited from billing any WIP that’s 30 days or older. This would apply to both time entries and late accounts payable invoices.

Classic examples include a vendor invoice a firm receives that’s beyond the 30-day threshold. The A/P department will have to pay the vendor and realize at that moment they aren’t going to be able to charge the cost back to the client.

The sheer fact that the firm learns about this in advance, and is not caught off guard after an invoice rejection, goes a long way to effectively navigating the complexity of billing guidelines.

Flexible Validation Applied Across Client Touchpoints

The last example about invoices brings up an important point. When firms implement these rules, they must be flexible enough to permit the transition from stage to stage – for example, from time entry to bill review, or from disbursement to bill review.

Firms tell us they experience this routinely with approved timekeepers. A managing partner and client may have agreed to have 10 named lawyers work on a matter at a negotiated rate. Later, that partner might bring on an 11th lawyer to help solve a client problem, but in the heat of the moment, forgot about the nuance in the billing agreement. The e-billing system will reject the invoice if that extra lawyer’s time entries are listed.

There are many valid reasons that an 11th lawyer should be working the case, so the system and validation measures need to be flexible and agile enough to accommodate it. It might warn the lawyer that his or her time is not billable, but the time and billing system shouldn’t just prevent the time from being entered. Instead, it should flag those entries and initiate a workflow that prompts the partner to have that approval conversation with the client.

If approval comes in on time, the problem is solved, and the time goes on the invoice to be paid. If approval doesn’t happen in time, the validation rule transitions form a time entry rule to a bill review rule. This means the entries are flagged during the bill review process, so the partner can decide how to proceed at that point in time.

Comprehensive Validation

The examples in this piece are real-world illustrations drawn from law firms. We’ve collected hundreds of others just like these as we study ways to solve this challenge with technology.

By the time you are reading this, we’ll have surely collected more. The point is, clients will almost always have unique billing requirements. Standardization of the guidelines isn’t likely in the foreseeable future.

Therefore, the answer for law firms is to identify ways use process and automation to embed OCG validation earlier in the billing cycle and have it integrated across every client touchpoint within the firm.

We’ll cover the second critical area of OCG validation rules, billing, in part two. Subscribe to the Think Tank blog to get notified when part two is available.

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